How we got here
During the last 5 years, markets have handed us a variety of challenging situations, and in each case, we have taken a thoughtful, deliberate approach to handling them.
This has included a market selloff resulting from a federal government shutdown (18-‘19), a global pandemic (‘20), and 40-year peak in the inflation rate (‘21), and a bear market driven by rising interest rates (22) to cure problem levels of inflation.
While each of these quite different situations presents different concerns, our response has been consistently applied.
In each case we have made adjustments to hedge risks that can be visibly identified, diversify away from those that may be hard to predict, and closely guard liquidity.
What is happening right now
On Wednesday, the federal government decided to implement tariffs on nearly all imported goods, though the amount varied widely by country.
When goods are imported from other countries, the importer (i.e., retail seller) will pay the seller the agreed upon price as normal, and additionally a new tax paid to the US government.
And because no seller would willingly purchase goods and then sell them at a loss, tariffs normally result in a dollar-for-dollar markup added to the cost paid by the buyer.
Keep in mind that tariffs are expressed as a % of the wholesale price, not the retail price, so prices changes will be similar (but not identical) to the rate of the tariff applied.
In recent history, tariffs are normally applied only when a country has engaged in anti-competitive practices, also called “dumping” (i.e. selling goods below the cost to manufacture them, while the producer is kept afloat by government assistance, with the specific intent of putting other competitors out of business).
What has happened recently
How this impacts the economy depends primarily based upon where tariffs ultimately land, and initial tariffs on Canada and Mexico were extremely short-lived.
In fact, 25% tariffs on these two countries were promised on inauguration day (1/21/25), authorized by executive order on 2/1 with a planned start date of 2/4, only to be removed on 2/3.
Both tariffs were promptly repealed after Canada and Mexico agreed to increase border security by assigning more troops to cover the border and reduce the fentanyl trade.
What this means is that tariffs were used not as a tool to reduce unfair trading practices, but instead to get other countries to do things (unrelated to fair trade practices) which are important to the government.
In other words, tariffs were imposed against two of our largest trading partners, and after getting something in return to remove them, the same exercise is now being applied to nearly all countries, but with a wide range of tariffs being applied.
What does this mean for the economy
If tariffs remain in place for an extended period, as is typically the case, the cost of imported goods would likely rise by an amount roughly equal to dollar amount of the tariff itself. This could lead to broader price increases, as American-made physical goods—often perceived as higher quality, and accepted as being somewhat more expensive—may also increase in price to maintain their premium positioning relative to imports.
As a result, we could see price hikes across both domestic and imported goods. This scenario bears some similarity to the recent period of high inflation (‘21-‘22), where some companies raised prices solely to cover costs, while others took advantage of the moment to boost profits. Therefore, the inflationary effects of tariffs may not be limited to imported goods alone.
Where do we go from here
Looking ahead, we continue to emphasize the importance of building well-diversified portfolios that are designed to navigate a variety of market conditions, while implementing thoughtful, deliberate adjustments along the way.
Given recent policy changes, it’s entirely possible that policymakers could reverse course quickly, resolving the current tariff-related tensions sooner rather than later. The highly assertive posture in how these tariffs have been implemented make them appear more likely to be a short-term negotiating tactic, and less likely a long-term policy change.
At the same time, we must acknowledge the possibility that this environment could persist, with tariffs remaining in place for an extended period. This seems less likely, as the root cause of recent market activity is clear, and the remedy—returning to a more stable trade policy—could be implemented swiftly and easily if political will allows.
Remember, while many elected officials thrive on public attention, they often retreat when the spotlight turns critical, which could prompt faster action than some may expect.